Pemex remains an interesting story, as in addition to operational and financing challenges it is lagging in the ESG area, which has kept some investors away, and while steps in the right directions are being made, it is not yet clear how long it will take the company to bring itself within the ESG framework. On the positive side, the company has the support of the Mexican government, which beyond making direct transfers can ease the company’s financing burden in various different ways (e.g., lower taxes, delay transfers to the government, among others). We find PEMEX bonds attractive at current yield levels, particularly PEMEX 2030s and 2031s, which have the highest spread to corresponding Mexico bonds. Taking outright positions or on a spread basis both look interesting to us at the moment.
Since the announcement of the bond issuance to re-pay suppliers on 31 May 2022, the spreads between Pemex and Mexico bonds and CDS moved to a different level. For example, before the announcement the one-year average CDS spread differential between Mexico and Pemex was around 275bp, with a range between 215bp and 365bp, and since the announcement the average spread is 475bp with a range between 355bp and 590bp. The spread between some bonds followed a similar pattern, which seems to have been driven by general market sentiment, but there are also some technicals to consider: the PEMEX 31 – MEX 31 spread is c.550bp, well above the last ten-month average, and with the support level at c.600bp, this makes it an attractive entry point, in our view, also taking advantage of the lower cash prices for PEMEX, and with the advantage of relatively sound liquidity.